Regulating the Gig Economy: Is It a State Failure to Address the Market Failure?
Introduction
In recent months, strikes organised by gig workers’ unions in major Indian cities have received considerable media attention. Notably, on the eve of the New Year in 2026, a delivery-sector gig workers’ union based in Bengaluru called for a nationwide strike to press its demands on platform aggregators. The strike, however, elicited mixed responses from labour representatives and industry stakeholders. While union leaders described the action as successful, leading platforms such as Swiggy and Zomato reported record-high order volumes and delivery completions on the same evening—outcomes that would have been unattainable without substantial worker participation. This apparent contradiction underscores the persistent ambiguities surrounding the functioning of gig labour markets, the nature of platform-mediated work relations, the effectiveness of recently introduced labour regulations in safeguarding workers’ welfare, and their capacity to address labour market inefficiencies. This article seeks to examine some of these issues.
Gig market in India is growing at a rapid pace, where India has emerged to be a major market to big platform aggregators. While this form of labour has peculiar characteristics, distinct from others, it has posed significant challenges for policy makers to regulate. The complications also arise with the fact that the impact this market has created on the workers is not clearly analysed given the complexities and heterogeneity associated with the market. While for some, the gig economy represents the height of liberty due to the flexibility and freedom associated, others have called it the new precariat. Scholars who look at gig economy as a new form of capitalistic exploitation have questioned the labour relations of the gig workers and the nature of liberty associated with it. Questions are raised whether it is the lack of opportunity to be employed elsewhere, the reason for the gig workers to be occupied in the current jobs they are in.
The ongoing debates and the witnesses to the labour union strikes called by the gig workers’ union are also an indication that gig labour market is not working efficiently and the existing laws have not done sufficient to meet the welfare of the gigs, especially the on-demand workers who are drawn largely from the unorganized sectors of the economy. In this context, we raise three important questions – 1) What elements of market make us assume that the gig economy could be a market failure and what are the problems with this form of labour market. 2) What are the regulatory issues confronting the gig economy? 3) In what ways, especially, the newly introduced labour codes, which have large implications for gig workers, have not addressed the concerns of the gig labour market, by locating India within the broader international debate on labour classification.
Gig Economy: Why Could It Be A Market Failure?
In Economics market failure can be defined as a situation when the market outcome is not socially efficient, or ‘pareto optimal’, not allowing for the maximisation of social welfare, even if individual agents are acting rational. The typical sources of market failure include negative externalities, having characteristics of public goods, abuse of market power, information asymmetry, incomplete markets or coordination failures (when individual rational actions lead to collectively inferior outcomes). When markets fail, unregulated market outcomes limit welfare maximisation and therefore, there is a need for efficient policy intervention by the state to improve the social welfare.
While the gig workers have made a choice for gig work, possibly due to higher earnings and flexibility associated with the nature of the job, questions can also be raised whether gig work could be seen as welfare enhancing and is the gig labour market operating efficiently. The gig economy can represent a market failure in so far as labour transactions occur under information asymmetry, incomplete insurance markets and monopsony power, leading to allocations that are privately chosen but socially inefficient. Externalities for example, are experienced when actions impose costs or benefits on others and are not priced in the market. Gig workers experience negative externalities like pollution, congestion, or workplace injuries leading to health and life risks which are not accounting to for the workers. Similarly, the platforms engaging the gigs exhibit monopsonistic power. In the transportation sector in major cities, two players Uber and Ola had dominated the market for many years and created monopsonistic labour market for the gigs. Though a few more players have entered the market recently, it is possible that there continues to be elements of oligopsonistic power, as the platforms continue to set prices and control incentives and surge pricing, face inelastic supply of labour, use algorithmic allocation of rides, where the gigs face switching costs, and largely depend on platform generated demand with limited alternatives. There is also prevalence of information asymmetry in the gig economy, when the contracts the platforms enter with the gigs are not sufficiently clear with hidden elements or algorithmic opacity. Similarly, markets for covering risks, like health insurance are not accessible for the gig workers in India, when the risks are not borne by the aggregators. As gig economy exhibit the elements of market failure, we raise the question as to what extent the state has efficiently addressed to fill those gaps to correct the labour market imperfections.
Regulatory Responses Towards Gig Economy
Concerns surrounding regulating gig work have got to do with the provisions under various Labour Laws, the Competition Act of 2002, and even the Digital Personal Data Protection (DPDP) Act, 2025. However, the legislative coverage to protect the rights and welfare of the gig workers remains incomplete and, in several respects, inadequate. For instance, the Competition Act offers limited relevance in addressing the vulnerabilities faced by gig workers, while the new Data Protection Act does not provide sufficient safeguards to protect workers’ data privacy. Competition Law traditionally treats labour as an input market but rarely addresses monopsony harms directly. While abuse of dominance provisions could theoretically apply to labour market power, enforcement has overwhelmingly focused on consumer-side pricing rather than wage suppression. Also, the Indian Competition Law under the section 4 of the Indian Competition Act, 2002 considers only the abuse of dominance by the single firm and not collective dominance by two or a few firms as is what is existing with the platform aggregators in transport or delivery in major cities. In an earlier case too, the Competition Commission of India has explicitly observed that the Act does not contemplate joint dominance.
While the New DPDP Act, 2023 covers provisions pertaining to data processing, consent, data fiduciary obligations, data subject rights (access, correction, erasure), it lacks provisions to regulate fairness in algorithmic wage setting, fairness in ratings, unfair unilateral deactivation. Similarly, under the new Act, ‘consent’ must be free, informed, specific, unambiguous and revocable. The gig worker, in theory, chooses to share location data, allow performance monitoring, accept algorithmic decision making and permit data sharing with third parties. Questions can be raised if the ‘consent’ given by the gigs are free consent or a coercive consent under conditions of economic dependency.
However, among the existing legislative frameworks, the recently introduced labour codes have the most direct implications for gig worker welfare. While the gig workers are included for the first time under the New labour Codes of India, we raise two critical questions on why the coverage of gigs under the new codes are insufficient and also ineffective to protect their occupational security and worker welfare. We discuss this under the following two headings – a) The nature of contract and employment relationship; b) Welfare provisions for the gigs and their occupational safety.
a. The Nature of the Contract and Employment Relationship
In India, gig and platform workers remain largely classified as independent contractors with minimal labour law protections, operating under fragmented regulatory frameworks such as the Companies Act, sectoral regulations, and executive guidelines rather than a dedicated labour statute. We explain as to why this is a concern and how some of the countries in the west are evolving with legislations to treat the gigs with separate classification in between an employee and independent contractor, whereas India continues to treat the gigs largely as unorganized sector workers with limited provisions of welfare measures. The comparison with the western labour laws for gigs would be insightful, given that some of the developed countries like the UK and the US have seen a sharp growth in the gig workforce and the labour laws having progressed notably to accommodate this class of workers.
Across jurisdictions, employment classification has historically distinguished between employees and independent contractors, but the expansion of non-standard and gig work has blurred these boundaries. Courts have developed multiple judicial tests to determine employment status, including control, integration, economic reality, and mutuality of obligation. In the United States, no single unified framework exists; classification varies by legal right and enforcement agency, with regulators relying on multifactor approaches such as the IRS Common Law Agency test, the Economic reality test, and the ABC test. This fragmented approach has produced inconsistent judicial outcomes, illustrated by contrasting rulings in Berwick v. Uber (2015) and Grubhub v. Lawson (2018), despite similar analytical frameworks.
In contrast, the United Kingdom has adopted a tiered classification system distinguishing ‘employees’, ‘workers’, and the ‘self-employed’, providing an intermediate category that offers quite a few labour protections. The ‘employee’ has full employment rights (redundancy pay, unfair dismissal, sick pay etc); whereas ‘worker’, which applies to causal workers has some rights on minimum wages, holiday pay, anti-discrimination, etc, and ‘self-employed’ has no employment rights beyond contract terms, which is largely applicable to freelancers and independent consultants. UK courts apply a holistic assessment incorporating control, personal service, mutuality of obligation, integration, and economic dependence. This led to relatively consistent outcomes in cases such as Uber BV v. Aslam (2021) and Hermes v. GMB (2019). However, courts have also denied worker status where substitution rights negate personal service, as in Deliveroo (2023). ‘Workers’ receive minimum wage, holiday pay, and discrimination protections but lack unfair dismissal, redundancy, and statutory sick pay rights, with holiday pay often provided as a weekly uplift rather than accrued leave.
The Uber BV v. Aslam (2021) ruling triggered global regulatory debates and reforms, particularly in the United States, where federal and state governments introduced hybrid legislative responses. Washington State (2022) retained contractor classification but mandated minimum pay rates and sick leave accrual, while California’s Proposition 22 (upheld in 2024) created a contractor carve-out with limited benefits such as wage floors, mileage compensation, and health stipends. At the federal level, the US Department of Labor reinstated and revised the economic reality test in 2024, effective 2025, strengthening the potential for reclassification where platforms exert substantial control. Beyond common law systems, several jurisdictions have recognised intermediate employment categories such as ‘dependent contractors.’ Spain, Canada, and Germany have introduced statutory or judicial recognition based on economic dependence, exclusivity, and integration into the principal’s business, with thresholds for income dependency varying across countries. The EU Platform Work Directive (2024) further institutionalises a presumption of employment when platforms exercise control over work allocation, pay, monitoring and scheduling, shifting the burden of proof to platforms and enabling administrative reclassification without litigation.
In India, gig and platform workers remain largely classified as independent contractors with minimal labour law protections. Indian courts have evolved from a control test to integration and multifactor test in determining employment relationships in the past, but labour statutes do not explicitly address gig work. Litigations have largely focused on wages and conditions rather than classification, although ongoing cases such as IFAT v. Union of India (2021) seek recognition of platform workers as unorganised workers eligible for social security. Despite judicial acknowledgment of platform control and integration, gig workers continue to be excluded from labour law protections under key labour codes, reinforcing their de facto treatment as independent contractors.
India also lags behind many international jurisdictions in providing comprehensive protections not just for gig workers but broadly for the informal and contractual workers. Adopting clear legal definitions, extending social security, and enabling collective bargaining – drawing from international models are critical steps for improving gig worker and other informal workers’ welfare in India. According to the US Department of Labor, Wage and hour division, the FLSA covers about 85% of the US workforce and according to the US Social security administration (SSA) about 94% of the US workforce are covered by social security for retirement, survivors and disability benefits. India poses a strong contrast with only 10-15% of the total workforce in the formal sector. India can draw lessons from the western countries especially UK, where there is higher formalization of working relationship in the absence of unorganized worker category. Thus, anyone covered under an employer-employee relation, be it full time or part time contractual employment are covered under most of the labour laws and protections, unlike in India, where the contract labour or the unorganized workers are barely covered due to possible evasions of applying the laws or poor nature of employment contracts, or poor enforcement mechanisms. India, while thinking of categorising gig workers may have to think simultaneously for reforms on those lines.
b. Welfare Provisions and Occupational Safety Under the Labour Codes
The four labour codes introduced in India during 2019–20 consolidated 29 existing labour laws with the stated objective of simplifying compliance and promoting ease of doing business. Gig and platform workers are addressed only under the Code on Social Security, 2020, where they are explicitly placed outside the traditional employer–employee relationship and effectively subsumed within the unorganised sector. The gig workers are asked to register under the e-shram portal like their unorganised sector counterparts to get benefits under the social security schemes to be formulated by the central government on matters relating to Life and disability cover, accident insurance, health and maternity benefits, Old age protection, creche and any other benefit as may be determined by the central government. These schemes are to be financed from the cess collected from the aggregators. This classification is problematic, especially given that gig workers operate under significant platform control and are integrated into formal, often global, business models. Treating gig workers as unorganised workers merely extends India’s long-standing informalisation of labour, particularly since welfare-based social security schemes (like for example provisioned through Building and Other construction workers Welfare Act, 1996) are a weak substitute for institutional labour protections such as minimum wages, job security, maternity benefits, and collective bargaining rights. On the Wages, the Code on Wages, 2019 universalises provisions on minimum wages, making them applicable across both organized and unorganised sectors. It mentions that it includes gig and platform workers, regardless of employment classification. As of now, the minimum wages are defined as wages per day for unskilled, semi-skilled and skilled workers in different states. There is no clarity as to how to make this operational for the gig workers who work on a flexible mode under multiple platforms.
Gig workers are so far not included under any provisions under Occupational Safety, Health and Working Conditions Code, 2020. Platform work involving retail delivery and transport constitute a large percentage of the total gig workforce. Workers in these two sectors combined perform their work in large metropolitan cities and are exposed to long working hours, extreme weathers and pollution. A survey conducted by the author for one of the studies shows that the average work of the Uber and Ola drivers stand at 12 hours a day whereas the gigs working for delivery ranges from 8-10 hours a day where, most often the best earnings are earned with working in the late evening to early morning hours spending the night in the roads. Also, a recent study conducted of the gigs workers across four sectors of food and grocery delivery, E-commerce, ride hailing and personal care work by Janphal across 10 Indian major cities of India shows that gig workers have reported of road safety risks, exposure to violence, lack of health insurance, long hours of work, lack of basic infrastructure like limited access to toilets, water, rest areas, exposure to extreme weathers like rain and heat. The absence of gig workers from other labour codes like the Industrial Relations Code, Occupational safety Health and Working Conditions Code limits meaningful protection, rendering minimum wage provisions and contractual safeguards largely non-operational for platform-based work. For India, meaningful reform requires moving beyond welfare schemes towards clear legal recognition of employment relationships, integrating gig workers into labour protections, and gradually formalising the vast informal workforce rather than expanding its boundaries.
Conclusions
The ongoing debates and the witnesses to the labour union strikes called by the gig workers’ union are an indication that gig labour market is not working efficiently and the existing laws have not done sufficient to meet the welfare of the gigs, especially the on-demand workers who are drawn largely from the unorganized sectors of the economy. As gig economy exhibit the elements of market failure, we raise the question as to what extent the state has efficiently addressed to fill those gaps to correct the labour market imperfections. Through a deeper analysis of the newly introduced labour codes in India, we conclude that the labour laws towards the gig workers are incomplete and insufficient. By situating gig workers within the unorganised sector and limiting their protection primarily to social security schemes under the Code on Social Security, 2020, the state stops short of addressing the deeper questions of control, dependence, and integration that define platform work.
Comparative experience from other jurisdictions demonstrates that meaningful reform in this area typically requires clearer presumptions regarding employment status, enforceable labour standards, and institutional mechanisms that enable collective representation. While the introduction of an intermediate or “third” category of workers—adopted in certain Western jurisdictions—appears ideal, its transplantation into the Indian context can come with some challenges. Structural features of the Indian labour market, including the scale of informality and limited enforcement capacity can complicate the direct adoption of such models. Nevertheless, irrespective of the classificatory framework adopted, the obligation to guarantee minimum labour protections remains fundamental. At a minimum, gig and platform workers should be assured protections relating to minimum wages, life and health insurance, minimum guarantee of earnings per month, occupational safety, and social security consistent with international labour standards. The present welfare-oriented framework under the Code on Social Security, 2020—largely dependent on scheme-based provisioning financed through cess contributions—does not sufficiently secure these substantive rights. Core labour protections, therefore, require clear statutory entitlements, enforceable obligations, and institutional mechanisms for compliance and redress.
* Deepika M G is a Professor in the Department of Economics in Alliance University, Bangalore